The change of a defence contractor to become a systems integrator

Abstract

To deal with external changes and the current position of Rheinmetall Air Defence (RAD), it was decided that RAD’s current business model should be modified such that RAD will become a systems integrator. This research examined the potential transition towards this new business model with a focus on the involvement of external partners and the potential problems associated with this change. To analyze this, extensive research is needed due to the complexity of the proposed new situation and the difficulties associated with the transition to this situation, such as the resulting interactions within the firm and with external partners. This research examined the transition using a practice-oriented case study where all factors that play a role were studied in detail. The outcomes of this research are relevant for both RAD and for other firms similar to RAD that are undergoing this transition. If some influencing features of RAD are kept in mind; RAD is a defence contractor, and produces small numbers of products to customer order. The main focus of this research is the transition of RAD’s current business model to that of a systems integrator with a special focus on the involvement of external partners in the development process. The current situation is analyzed first, after which the potential problems and consequences for RAD of the desired business model are analyzed. There are many expected problems as the change in business models is quite significant. The resulting research question is: “What problems could RAD face by changing the business model to become a systems integrator?” To analyze this question the cyclic innovation model (CIM), a fourth generation innovation model, combined with the transaction cost theory is used. This combination was chosen because every contact between the stakeholders in the CIM can be seen as a transaction with the resulting costs in the transaction cost theory. The aim of this combination was to explain the cycles of the CIM. This research shows that the CIM is able to analyze the change and point out important differences between the current and the desired future business model of RAD. The transaction cost theory proved to be less useful as decisions in the current situation are not influenced by the transaction costs, but by the firm culture, and there is no influence at all from the external partners. The analysis of the current situation showed that there are several problems with the timing and collaboration of external partner involvement, and with the low inter-department collaboration within RAD. RAD being a defence contractor also has a very large influence on the involvement of external partners. This limits the number of external partners, especially as governments are the only customers, and there are they impose restrictions and have request with regard to knowledge sharing. Also, RAD is a project based firm, and all of the products are adapted to specific client needs and only small series are produced. Therefore, the transaction costs and other nonrecurring costs are more important. The use of CIM showed that there are major differences between the current situation and RAD’s view of the future. The most important change for RAD is the change in responsibility; they become a prime contractor toward the client. This means that RAD will have to advise their clients on how they can best solve their air defence problems and provide lifetime support for the chosen systems. RAD will have to translate these problems into requirements for components. These components are then produced by external partners as well as by RAD itself, and integrated by RAD into working systems. This new approach is completely different form the way RAD previously worked, where almost everything was developed and produced in-house. After evaluating the situations with the described models, there are several recommendations to aid in the transition process. First of all, RAD should ensure that a systems integrator model is the right approach and that it is supported by the external partners. If ultimately the decision is made to change the strategy, the internal capabilities and external connections should be changed to support this. Some of the capabilities that have to be obtained are the capability to develop a base platform and the capability to work and communicate with external partners. This already starts with improved internal collaboration and overcoming the existing internal problems. RAD should also take the time to work out how to best transition to the new business model, and to define the new business model in more detail so that it can be used in the daily operations. This change should be gradual so that the current operations are not disturbed. The main issue is that this change will take time and is not without risk of failure. During the planning, attention must be paid to the outlined potential problems in order to avoid or mitigate them as much as possible. The most important cause of problems is that a major change process is required to reach the desired future situation; this also requires a change of culture within RAD which could prove to be quite difficult. More importantly, there are current internal problems that must be addressed. The internal situation must be rectified in order for the transition to the new business model to be successful, and for greater involvement of external partners to occur. Currently the main problems are related to inter departmental communication and collaboration and the current timing of the involvement of external partners. RAD should not try to change to quickly, and must first solve these internal problems before external partners are able to become involved. Once this occurs, the external partners must accept RAD's new role as systems integrator for the future situation to be successful. For the change to be successful is RAD also dependent on the external partners in as far as that they have to accept RAD in the new role as systems integrator. Even when a change strategy and new business model are carefully planned and developed, it is not possible to determine if the end result will be positive. RAD should confirm that a system integrator business strategy is the best option by considering all the possible problems that might occur. If RAD decides to move ahead with the change, it must be well planned, and a close eye has to be kept on potential problems in order for them to be resolved as quickly and as efficiently as possible.